From Freemium to Premium: How to Boost Revenue by Monetizing Free Services

Whoever said there’s no such thing as a free lunch clearly hadn’t been working in SaaS. Do some research and you’ll find at least 75% of SaaS companies offer a free trial. And why not? It incentivizes signups and is ideal for emerging companies still finding their feet. But while freemium models have worked for the likes of Zapier, MailChimp, and HubSpot, giving too much away can sap revenue as expenses rise to cater to those swiping free deals. 

Take your recently Acquired business, for example. Does it operate a freemium model? And if so, are you converting free customers to paid? If not, you might be wasting time, money, and resources on customers who’ll never spend a cent. In which case, switching from freemium to premium might save your business from spiralling into obscurity. Or at the very least, boost revenue. 

That said, people dislike change, especially when it hits their pockets. You might not be able to go from freemium to premium in a single stroke. You might even retain a free tier in your pricing strategy. However, you need to make the premium option the best option. In other words, make your paid plan so irresistible that people make the switch. 

Analyze Your Proposition – Where’s the Value?

Going from free to paid is a judgement on value. Since value is relative, you must first understand whom your product or service benefits most. These customers will perceive the most value in what you do, and it’s to these customers you must charge a premium. 

If your recently-Acquired business has a tiered pricing plan that includes a free option, review your paying customers and draw up some buyer personas. Who are they? What do they do? How do you help them? What are their favorite features? Why did they pick you over competitors? Surveys, market research, and competitor analysis will also help build a picture of where you add value. 

Once you’ve identified where your core value lies, anything less is fair game for a free trial or even a free subscription (provided you Acquire enough paying customers to compensate for the additional drain on resources). It’s simple: what your paying customers love you restrict on your free plan, which will tip those on the fence into signing up without sacrificing value to those who’ll never pay. 

A side note on monetization

Don’t waste your time trying to sign-up everyone. You have to think of pricing holistically. Market to the prospects most likely to buy a paid plan. The free tier then becomes an incentive to get them on board. However, this only works if:

  1. You’ve correctly identified who’s most likely to benefit from your product.
  2. You’re selling through channels and mediums qualified leads use.
  3. You’ve priced and designed your paid plan correctly. 

Otherwise you run the risk of overspending on marketing and ending up with more free customers than paid, which returns you to square one. 

How to Avoid Customer Pushback

If you downgrade or remove a free plan, some customers will walk. This isn’t as bad as it sounds. Most of your best customers will be on a paid plan since they’re your power users. Even if your service has been exclusively free so far, those that love it will be willing to pay a fair price for it. Filtering out low-value customers also helps you focus on customers that matter, which to many, justifies a fee.

Communication is critical. People tend to equate price with quality, so introducing improvements can make a price increase easier to swallow. Regardless, frame the changes honestly and from the customers’ perspective. Use everything you know about your customers to convey a message that’s confident, empathetic, and positive. Do plenty of research in advance to ensure you’re charging what customers are willing to pay (often referred to as WTP).

You might also consider testing the switch with a small sample of customers. This helps catch issues early, and might indicate the need for grandfather discounting or other compensations (which have their own disadvantages). Whatever you decide, even if testing goes well, give your customers plenty of time to accept the changes so they can find alternatives if necessary. 

Going from free to paid needn’t be as frightening as it sounds. You don’t need a free version, but it helps to incentivize people early on in the buyer’s journey. You might also consider a free trial that gives people a taste of the true power of your offering. Once you’ve established who benefits from your service and where your value lies, a fair and competitive price will boost revenue without scaring away customers. 

Get content like this, and more, sent directly to your inbox twice a month.